Hosers or Hosed? Labatt Brewing Co. Ltd. v. NHL Enterprises Canada and the Battle over Beer Rights

By Carter Anne McGowan

Few if any sponsorships are more lucrative in professional sports than beer sponsorships. The National Hockey League (NHL or League) – long sponsored by Anheuser-Busch-owned Labatt in Canada – recently found itself embroiled in litigation brought by Labatt alleging that the League breached its Canadian beer deal when it entered into a U.S./Canada beer sponsorship with Labatt’s archrival, Miller Coors (Molson Coors in Canada). On June 3, 2011, two days after NHL Commissioner Gary Bettman trumpeted the Molson Coors deal in his annual state-of-the-game speech at the Stanley Cup Finals, Justice Frank Newbould of the Ontario Superior Court ruled that the League engaged in double-dealing when it contracted with Molson Coors regarding rights the court deemed already granted to Labatt.

The case presents a fact pattern only a contracts professor could love: at issue were law school favorites like the interpretation of a renewal clause, waiver, the point at which an agreement becomes binding, and agreements to agree. In brief — as brief as one can be – the NHL twice expressly extended a period of exclusive negotiation provided in the renewal terms of the 2008 contract between the League and Labatt, and then, instead of further express extensions, made casual intimations that extensions “would not be an issue” as they progressed toward an agreement. Labatt and the NHL exchanged non-binding term sheets and letters of intent setting forth their agreed upon deal points through November and December 2010 and, instead of signing any of these, agreed to go directly to a long-form agreement. After a month of exchanging mark-ups, on February 8th of this year, the NHL told Labatt it was terminating negotiations. On that same day it signed the biggest beer sponsorship in League history: a seven-year, $375 million deal with Molson Coors.

Molson Coors had approached the NHL regarding sponsorship rights on January 3, 2011. Over the next several weeks, various NHL-related sources informed Molson Coors that the NHL already had a Canadian deal with Labatt. On January 26th, the NHL proposed exclusive U.S. beer sponsorship rights to Molson Coors; Molson Coors responded that it was only interested if the sponsorship was for the United States and Canada. The next day, the NHL agreed that it was able to grant such rights. Molson Coors agreed to the deal with the proviso that the NHL indemnify it against any claim brought by Labatt. Thirteen days later, the NHL and Molson Coors agreed to terms and signed a letter of agreement, including the requested indemnity. Labatt promptly brought suit. (Labatt Brewing Co. Ltd. v. NHL Enterprises Canada, L.P. (2011 ONSC 3219).)

At trial, Labatt argued that after its exclusive negotiating period was twice expressly extended, the NHL then waived the time limit (or, in the alternative, represented an intention not to be bound by the express exclusivity period due to its course of conduct), and the parties had come to “terms of renewal” as stated in the renewal clause of the 2008 contract which, although less than fully-negotiated terms of agreement – required the parties to continue to negotiate until they reached agreement on all business terms. The NHL countered by claiming that the exclusive negotiation period ended on October 22nd, irrespective of the NHL’s continued negotiating thereafter, and that requiring it to continue negotiating until the parties reached agreement on all business terms after agreeing on terms of renewal constituted an unenforceable agreement to agree.

Justice Newbould, taking a view that comported entirely with neither NHL nor Labatt arguments, held for Labatt, finding that the negotiating period was indefinitely extended by the NHL; “an agreement” was reached on November 12th and therefore there was no obligation that Labatt and NHL ever reach a long-form agreement; and the NHL was precluded from negotiating with Molson Coors as of November 12, 2010.

As the clock ticked inexorably toward the 2011 – 12 season – without a pro season start minus the seemingly necessary beer sponsor in place – the NHL requested and received an expedited appeal at the Ontario Court of Appeals. In a brief eight-page ruling that did not even discuss three of the NHL’s four grounds for appeal, the Court of Appeals reversed Justice Newbould’s decision. (Labatt Brewing Company Limited V. NHL Enterprises Canada L.P. (2011 ONCA 511).) The reversal came on procedural grounds, with the appellate court finding that Justice Newbould had erred in determining that the NHL and Labatt had reached a binding sponsorship agreement as of November 12th when neither party had argued that a binding agreement was reached on that date. Citing many precedents in Canadian law, the Court of Appeals found that it was procedurally unfair to the NHL to determine a case based on a novel theory of liability not raised by either party at any point during litigation, as that left the NHL without the ability to rebuff the assertions made under the theory.

As of this blog, the 2011-12 NHL season will commence with Molson Coors as the League’s beer sponsor. However, Labatt is contemplating further legal action and has acquired direct beer sponsorships with three Canadian teams, which sponsorships include the extremely important pouring rights in those teams’ arenas. Meanwhile, the case will not go down as one of the finest moments in the NHL’s legal history, as it appears that neither the NHL nor Molson Coors acted in an altogether upstanding fashion during these negotiations. Perhaps the current result is legally correct, but the whole affair leaves a bad taste in the mouth…perhaps the taste of spoiled beer.

Credits

Originally published on August 17, 2011 by the Entertainment Arts and Sports Law Section of the New York State Bar Association
http://nysbar.com/blogs/EASL/

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